Minnesota Mortgage Blog

Well, we never thought we would catch the Chairman of the Federal Reserve doing the twist. Don’t expect him to win any dance contests with this routine, though. First of all, what is "Operation Twist"? In a nutshell, the Fed will be selling short-term securities and then purchasing long-term bonds, to the tune of $400 billion over the next eight to nine months. The purpose? Lower long-term rates even more and loosen up lending conditions. We believe that long-term rates are not holding up borrowing. After all, they are the lowest they have been within our generation. Certainly homeowners can’t be complaining about rates on home loans in the 4.0% range. On the other hand, looser lending standards would be just what the doctor ordered. If standards were even slightly lower, then thousands more could take advantage of these rates. Will this second objective be achieved? Certainly it is hard to say at this juncture.

Meanwhile, we received some positive news last week with regard to home sales. Existing home sales were up 7.0% in August as new home starts were down 5.0%, but building permits rose. Existing home sales are actually more important because they help reduce the inventory of homes available. We need strong existing home sales in order to pave the way for more new homes in the future. This positive news did not seem to faze the markets as it was released in the same day that the Fed was announcing Operation Twist. This week we have a full slate of data being released, including new home sales, personal income, durable goods and consumer confidence. Next week the focus will be on the employment report. It will be hard to ignore this amount of data, especially the employment numbers.